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Surfing the Crowd Funding Wave: Is it Right for Your Effort?
Seeking new sources of capital in this down economy? There is an avenue that may offer an additional option for your business, initiative or non-profit cause. Crowd funding is an online sales platform used to raise money from numerous people in small amounts. Business, individuals or nonprofit organizations can establish a campaign with their story and a target amount for funds raised.
The aggregate or total of ‘the crowd’ giving or investing small amounts can add up to a meaningful total. Amounts are small, as low as $10, and many of these sites work with donations. DONATIONS? For a business? Sounds like free money, right? But remember, there is no free lunch.
Crowd funding works for businesses, organizations or individuals with a compelling story and/or product people want to be a part of. It requires promotion and catching the attention of interested and motivated participants. Early successes were artists raising money for projects as donations. A number of documentary and indie movies have been underwritten with many small amounts – with totals as high as $100,000.
There are New Mexico stories. The NM International Film Festival and the Santa Fe Film Festival have campaigns currently (find at www.indiegogo.com). These are worthwhile events that contribute to our local culture. In Las Cruces, students have raised money in $2,000 increments on Kickstarter to produce their films (www.kickstarter.com/discover/cities/las-cruces-nm). And, the band NRG Rising from New Zealand has Maori members. They are raising money to perform as an international guest at the Gathering of Nations Pow Wow in Albuquerque in 2012: www.indiegogo.com/NRG-Rising-NZ-to-New-Mexico-April-2012.
Are you a fit?
Entities fitting as many of these criteria as possible are the best candidates:
- Benefit from small amounts of capital from $1,000 to $25,000
- Are working in advance of the effort, particularly to finance manufacturing, an event, or an undertaking
- Early stage with a specific project
- Are willing to do their own marketing and have an outlet to reach people: facebook, e-newsletters, other channels
- Crowd funding is especially beneficial if you lack sales infrastructure yourself, such as a payment processing option
Choosing the Right Crowd
Dozens of websites offer platforms for you to raise money. IndieGoGo is one of the oldest and largest. It caters to a wide range of efforts – creative, cause-related, inventors and entrepreneurs. Kickstarter is another popular one, boasting over 1 million funders. On these sites, people give the money, usually in return for a gift, memento, or a product.
There are more specialized platforms, such as peer-to-peer lending sites. These sites lend to individuals (which can be entrepreneurs with a company). These are loans that have to be paid back, usually within three years, at rates determined by the applicant’s risk profile. On Prosper.com, the largest, borrowers list loan requests between $2,000 and $25,000 and individuals invest as little as $25 per loan. Lending Club is another well-known site that funds up to $35,000. Rates and fees can be as high as credit card levels, so this isn’t ‘free money.’
There are crowd funding sites well-suited for triple-bottom line endeavors. ProFounder is geared specifically to entrepreneurs. What’s different about it: investors receive a share of revenues over time as part of the compensation for lending. 33 Needsconnects micro-investors with social entrepreneurs with big ideas in topics including sustainable food, health, education, and the environment. It is a young site, but with a focus on triple bottom line endeavors, is a likely place to find committed investors who ‘get’ a TBL offering. Another people, profit, planet oriented effort is Start Some Good. Its goal is supporting social entrepreneurs, defined broadly. Both for-profit and non-profit entrepreneurs may post to the site; site staff review a campaign’s goals and provides feedback to better align with site categories.
Determining which site is right
There are dozens of sites out there. Choose one that fits your needs. Key questions to research:
What are the fees? Most require processing on their site and costs vary up to 10%.
How long is your campaign? Most set a limit to create a set of urgency
What types of entities posted on the site? Do you ‘fit’?
What are their funding requirements? This one is tricky. See below for more details
Is there customer service/support? Or, are you on your own?
What, if anything, do they do to promote you?
Funding requirements: Read the small print carefully. Do you get the money as it comes in or only at the end? Do you keep funds raised if you don’t reach your goal (some are on an “all or nothing” model)? Is there an upper cap? What do you have to offer in exchange for donations?
Be sure to check several sites as options vary, and review their Q&A pages in detail. Watch for promotions as some sites offer discounts or other special rates.
How to be successful
Remember, there is no free lunch. To benefit from crowdfunding, you have to be realistic:
Do I have a compelling story I can craft that will motivate people?
This is a form of democracy in action (truly the 99%). People need a compelling reason to back your idea. And, you have to package it well – it must stand out among others and be above ‘the noise’. Test out your idea and your presentation on honest friends to see if it would convince them to put money on it, before trying to convince people who don’t know you.
Can I put time and effort into creating a convincing pitch and actively promoting it?
Crowd funding is not a passive ad campaign. You cannot post your campaign, then leave it and expect funds will roll in. It takes active promotion. Make sure you have the bandwith and the drive to put in the time needed to promote your campaign. You must facebook, tweet, email, e-newsletter, promote in person, etc.
This method can generate capital, but it takes time and many donors. Data collected to date reveals 85% of backers give $50 or less. This is a volume play. Add updates and new rewards to the campaign to attract more attention. One business was raising money to make their product. Smaller donations received bumper stickers or t-shirts, but for $40 or more, they mailed the benefactor one of the products. They uploaded photos as manufacturing was underway to show progress and named their first ones for supporters.
Crowd funding is growing and has potential for triple bottom line businesses. Although most sites work from donations, it isn’t free money. However, it can be an affordable way to access a new cash flow, find new customers and advance your business.
Thanks to Daniel Jodarski, who provided research for this article.
Drew Tulchin lives in Santa Fe. He is Managing Partner of Social Enterprise Associates (www.socialenterprise.net), a boutique consulting firm helping businesses, NGOs, government and foundations achieve financial performance, social impact and environmental sustainability.
Short takes and shout-outs:
Interested to invest your money closer to your values? GreenMoney Journal is the place for you. Congrats to New Mexico’s own for turning 20 in 2012. Cliff Feigenbaum, founder and managing editor, is the author of ‘Investing With Your Values.’ Find out more about this award-winning publication and website (GreenMoney.com).
Santa Fe Community Foundation has a budding local initiative that needs your participation – a Giving Circle called Future Santa Fe. People come together to collectively support good causes working towards a sustainable and better Santa Fe for the next generation. I am a member. They have an upcoming event to learn more and meet the 2011 grantees, Homewise, SF Business Incubator and Think NM – January 13, 5-7 pm at Michael Wigley Galleries in downtown Santa Fe. Check it out at: www.santafecf.org/page.aspx?pid=335.
About the author
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